When creating an estate plan, there’s a lot of focus on what happens when someone passes away; however, many effective strategies begin during your lifetime.
One of the most useful tools for families looking to preserve generational wealth is gifting. By transferring assets while you’re alive, you may be able to reduce the size of your taxable estate and help your loved ones sooner.
Why planning is important
When a person passes away, the total value of their estate may be subject to a federal estate tax. But federal law allows individuals to give up to $19,000 each year to as many people as they like without triggering reporting requirements. This is known as the annual gift tax exclusion. Furthermore, you can do this for several years, as the lifetime exemption amount is $15 million per person.
Another strategy involves paying certain expenses for someone else. Payments made directly to an educational institution for tuition or to a medical provider for qualifying treatments are generally not treated as taxable gifts. This can be a meaningful way to support your loved ones while preserving your annual gift tax exclusions for other purposes.
Trusts can also be effective tools for long-term gifting. A living revocable trust allows you to transfer assets while still maintaining control over how and when the funds are used.
Gifting strategies should be considered a component of a broader estate plan. You need to consider factors such as:
- Financial security
- Long-term needs
- Family dynamics
All of these play an important role in deciding whether gifting makes sense.
You want to ensure any gifting strategy you implement aligns with both federal tax rules and your long-term goals. Therefore, you need to work with someone who can review your circumstances and design a solution that protects your assets, supports your family and preserves your legacy.